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COM/CRC/avs Date of Issuance 12/21/2007

Decision 07-12-054 December 20, 2007


Order Instituting Rulemaking into the Review of the California High Cost Fund B Program.

Rulemaking 06-06-028

(Filed June 29, 2006)



Title Page


Title Page

Findings of Fact 5151

Conclusions of Law 5757



1. Introduction

In today's decision, we build on the initiatives begun in Decision (D.) 07-09-020 to continue our universal service commitment by assuring the widespread availability of high-quality telecommunication services to all Californians. This decision will also promote economic growth, job creation, and the substantial social benefits by ensuring the rapid implementation of advanced information and communications technologies through adequate long-term investment in the necessary infrastructure throughout the state, and not just in urban areas. Pursuant to Pub. Util. Code § 739.3, the CHCF-B program is part of a broader framework to meet universal telephone service goals throughout California.1 As our next priority, as discussed in D.07-09-020, we hereby create funding to encourage deployment of broadband facilities for use in provisioning advanced telecommunications (as well as voice) service in unserved and underserved areas of California. We designate this allocation of money as the "California Advanced Services Fund" (CASF), to be awarded as explained below.

The CASF will serve as a valuable tool to spur deployment of broadband facilities in unserved and underserved areas of California by providing $100 million in funding over a two year period to qualifying projects. Our first priority shall be to consider funding for areas where no facilities-based provider offers broadband service. To the extent that CASF funds remain after granting projects in unserved areas, we shall next consider funding for underserved areas in which no facilities-based provider offers broadband service at the benchmark download transmission speeds of 3 million bits per second (MBPS) and upload speed of 1 MBPS. A deadline of June 2, 2008 is set for submission of CASF funding requests. We shall review, rank, and select qualifying projects for CASF funding based on how well they satisfy prescribed criteria, to be finalized through a subsequent workshop and approved by Commission resolution.

Beginning January 1, 2008, a 0.25% surcharge will be collected through retail telecommunications customers' bills to fund the CASF. Funding for the CASF program will not increase customers' total surcharges, however, since the CASF surcharge will be offset by an equal reduction in the CHCF-B surcharge. In order to achieve the most efficient administrative mechanism and appropriate fiscal controls appropriate statutory authority must be put in place consistent with our authority as a basis for disbursing CASF money. Therefore, prior to any CASF disbursements, we shall first seek enactment of legislation to add the CASF as one of the funds authorized for handling by the State Treasury. We shall likewise seek legislation for specific direction to carriers for remitting CASF collections and for use of the funds by the Commission. Such legislation is not required however, to begin implementation of processes for surcharge collection and for eligible providers to submit proposals seeking CASF funding of broadband deployment, as adopted in this order.

Broadband infrastructure is critical to the economic health and welfare of the state and its citizens.2 Broadband deployment will be a key measure of success in our information economy and is crucial to future productivity growth of the State. California is home to the leading centers for entertainment and high technology. We cannot and should not wait years for a national solution to alter the downward trend of the United States' ranking for broadband availability.3 Ubiquitous deployment of broadband is widely regarded as holding tremendous opportunities for consumers, technology providers, and content providers.

Basic telephone service is being provided on an ever increasing basis via broadband technologies, in addition to wireless and satellite technologies. Telecommunications service and usage patterns have been shifting for some time as consumers switch voice calls from traditional landline phones to wireless and VoIP networks. The number of wired telephone lines has been dropping between 3% to 5% for several years,4 while the number of wireless and VoIP lines has increased. Nearly 77% of Americans were wireless phone subscribers by the close of 2006,5 and 12.8% had only wireless telephones in 2006,6 and millions of businesses, schools, banks and government offices are projected to migrate from legacy landline telephone services to broadband services over the next five years. In California, the number of landline telephones decreased by 2.39 million from end-of-year 2001 to June 2006, while the number of wireless subscribers in California increased by 13.34 million to 27.52 million,7 and the number of advanced service subscribers increased by 7.76 million to 9.4 million.8

The shift in communication volumes from fixed wireline phone service to wireless and VoIP services has been rapid and dynamic as users became used to the convenience, cost and mobility advantages of wireless, bundled long distance and local calling plans, and the very low domestic and international calling rates (sometimes offered free) of VoIP. The average U.S. wireline toll minutes of use (MOUs) have dropped almost 30% since 2000,9 while U.S. wireless interstate MOUs per user grew more than 25% during the same period. The percentage of interstate minutes has increased from 16% to 28% of all wireless minutes.10 These changes in calling patterns are reflected in ILEC line losses.

Telecommunication services are starting to migrate to broadband because of the greater flexibility, efficiency and redundancy that can be achieved. In other words, in a broadband environment, voice service is simply one of many data streams flowing over the broadband connection.11 In our Uniform Regulatory Frameworks proceeding (URF), we noted the historic practice of finding that each telecommunications service constitutes a separate "market" is no longer a relevant factor for analyzing or explaining the dynamics of today's technologically diverse voice communications environment.12 Instead, we found that the voice market today consists of a rich mix of wireline telephony, wireless telephony, voice over Internet protocol (VoIP), and satellite voice offerings.13

Accordingly, it would be imprudent to continue to only support legacy networks of incumbent local exchange carriers through the universal service programs due to the fact that voice service is being provided on an increasing basis using advanced technologies such as VoIP and wireless technologies including broadband systems.14 Limiting universal service support to particular technologies skews competitive forces, and in some cases, inadvertently may discourage consumers in some areas from receiving advanced communication services and the economic and social benefits that flow from such services. This Commission must recognize and incorporate new technologies as it administers its universal service obligations so that we can continue to meet the goals of the Legislature for telecommunications in California.

As explained in D.07-09-020, promoting deployment of additional broadband within areas that are not served at all or underserved is consistent with universal service policies aimed at bridging the "digital divide" as articulated in Pub. Util. Code §§ 709(c) and (d). While we believe that solutions to the digital divide are best driven by market forces within the telecommunications and internet industry, the public sector has a role to play as well, particularly where in some places in California, the market has failed to bring advanced communications to it. The first and most important public role is to identify and remove unnecessary regulations or barriers in the way of broadband deployment and adoption. The second role is to identify appropriate public polices to provide significant assistance in overcoming broadband deployment obstacles should market forces fail, while increasing the rate of use of advanced telecommunication services.

To that end, we hereby establish a process for promoting broadband deployment in unserved and underserved areas of California through the CASF program, as prescribed below. An Assigned Commissioner's Ruling (ACR), issued on September 12, 2007, solicited comments relating to the implementation of the CASF to pay for some of the infrastructure costs of broadband facilities in California's unserved or underserved areas. In order to provide a funding source for the CASF, we solicited comments as to whether and how a portion of the already collected and appropriated B-Fund contributions could meet this purpose or whether other Commission authority could serve as the basis for independent funding. Opening comments were filed on September 26, 2007, and reply comments were filed on October 3, 2007. We have reviewed those comments and reply comments, and taken them into account in preparing this order.

Comments were filed by the major ILECs: Pacific Bell Telephone Company d/b/a AT&T California (AT&T), Verizon California Inc. (Verizon), SureWest Telephone (SureWest), and by the Small LECs.15 Comments were also filed by Sprint Nextel (Sprint), the California Cable and Telecommunications Association and Time Warner Telecom of California, L.P (CCTA/Time Warner), Omnipoint Communications, Inc. (dba T-Mobile), The Division of Ratepayer Advocates (DRA), and The Utility Reform Network (TURN).

The CASF shall be administered on a technology neutral basis by the Commission, with the goal of providing infrastructure support to extend broadband coverage as defined herein to unserved and underserved areas of California, with priority given to unserved areas. As explained in detail below, we define an unserved area as any service region in which no facilities-based provider offers any level of broadband service such that internet connectivity can only be achieved through dial-up service. We likewise define an underserved area in which no facilities-based provider offers broadband service at the benchmark transmission speeds of at least 3MPS upload and 1 MBPS download. Accordingly, we hereby establish a CASF to promote these goals, as set forth below.

1 The CHCF-B program supports "universal service" goals by ensuring that basic telephone service remains affordable in high cost areas within the service territories of the major incumbent local exchange carriers (ILECs).

2 Pub. Util. Code § 709, Executive Order S-23-06 of Governor Arnold Schwarzenegger, Telecommunications Act of 1996, Pub. L. 104-104, Feb. 8, 1996, 110 Stat. 56, at § 706, 47 U.S.C. § 157, Connecting California, California Public Utilities Commission Telecommunication Division Broadband Report Update, September 20, 2006, The Effects of Broadband Deployment on Output and Employment: A Cross-sectional Analysis of U.S. Data, by Robert Crandall, William Lehr and Robert Litan, The Brookings Institution, Issues in Economic Policy, July 2007, Broadband for All? Gaps in California's Broadband Adoption and Availability, Public Policy Institute of California, rel. July 10, 2007.

3 The United States is ranked 15th in broadband subscribers per 100 inhabitants, Organization for Economic Co-operation and Development (OECD) Broadband Statistics to December 2006, rel. April 2007, available at http://www.oecd.org/sti/ict/broadband.

4 Federal Communications Commission Trends in Telephone Service at Table 7.4, rel. Feb. 9, 2007.

5 CTIA's Wireless Industry Indices: 1985 - 2006.

6 Center for Disease Control, Wireless Substitution: Early Release of Estimates Based on Data From the National Health Interview Survey, rel. May 2007.

7 Local Telephone Competition: Status as of June 30, 2006, Federal Communications Commission, Industry Analysis and Technology Division, Wireline Competition Bureau, January 2007, downloaded from http://fjallfoss.fcc.gov/edocs_public/attachmatch/DOC-270133A1.pdf, Tables 9 (CLEC Lines), 10 (ILEC lines), and 14 (wireless).

8 High-Speed Services for Internet Access: Status as of June 30, 2006, Federal Communications Commission, Industry Analysis and Technology Division, Wireline Competition Bureau, January 2007, downloaded from http://fjallfoss.fcc.gov/edocs_public/attachmatch/DOC-270128A1.pdf, Table 10.

9 Federal Communications Commission Trends in Telephone Service at Table 10.2, rel. Feb. 9, 2007.

10 Federal Communications Commission Trends in Telephone Service at Table 11.4, rel. Feb. 9, 2007.

11 See, e.g., New Zealand Telecommunications Service Obligations Regulatory Framework - Ministry of Economic Development Discussion Document at §5.4 (August 2007) (Requesting comment on the obligations of Telecom New Zealand will be after it converts to an all broadband network within the next five years). See also, Pub. Util. Code § 871.7(c) (Commission shall investigate "feasibility of ... incorporating two-way voice, video, and data service as components of basic service.").

12 D.06-08-030, mimeo. at 264, COL 15.

13 Id.

14 National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U.S. 967 (2005) (Upholding FCC determination that high-speed transmission used to provide cable modem service is a functionally integrated component of that service, and "changed market conditions warrant different [regulatory] treatment.").

15 The Small LECs joining in the comments consist of Calaveras Telephone Company, Cal-Ore Telephone Company, Ducor Telephone Company, Foresthill Telephone Company, Global Valley Networks, Inc. Happy Valley Telephone Company, Hornitos Telephone Company, Kerman Telephone Company, Pinnacles Telephone Company, Ponderosa Telephone Company, Sierra Telephone Company, Volcano Telephone Company, and Winterhaven Telephone Company.

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